Biden, McCarthy close to deal as U.S. debt default looms

Photo: Drew Angerer/Getty Images

In an urgent bid to head off the looming risk of a U.S. default, President Joe Biden and leading Congressional Republican Kevin McCarthy seem to be closing in on a deal to cut spending and raise the USD 31.4 trillion (31,400,000,000,000) debt ceiling. The proposal would stipulate a total sum for government spending on discretionary programmes such as education and housing, yet not assign specific amounts to individual categories. The two sides, reportedly only USD 70 bln apart on a total figure exceeding USD 1 trillion, held a virtual meeting on Thursday.

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President Biden said that he opposes placing the entire burden of these cuts on middle-class and working-class Americans. The exact amount of time Congress has left to act remains uncertain. While the Treasury Department has indicated that it may be unable to cover all obligations as early as June 1, the sale of USD 119 bln worth of debt due on that date has prompted some to believe that this is not a definitive deadline.

Gaining approval for this potential agreement will require passing it through both the Republican-dominated House of Representatives and the Democratic-controlled Senate, a task complicated by dissatisfaction amongst both right-wing Republicans and many liberal Democrats with the idea of compromise.

In addition to establishing broad spending outlines, the deal would determine the total military spending amount, a major point of contention in the talks. Meanwhile, Biden has opposed Republican suggestions to enforce stricter work requirements for anti-poverty programmes and to relax rules around oil and gas drilling.

The ongoing standoff has caused unease on Wall Street, influencing U.S. stocks and increasing the nation’s borrowing costs. Credit rating agency DBRS Morningstar has placed the United States under review for a possible downgrade, mirroring similar warnings from Fitch, Moody’s, and Scope Ratings. If a solution isn’t found soon, a U.S. default could have severe global financial implications and potentially lead to a domestic recession.